Powering the Mitten: What's next for our renewable energy future?

Every morning, Chandler Township Supervisor Bill Wren drives to the end of his driveway and gazes up at a 325-foot wind turbine located about three quarters of a mile away from his house.

"I look up to see which way the wind is blowing for the day and how strong it is," says Wren. "Then I go on to work."

Chandler Township, located near the tip of Michigan's thumb, is ground zero for Michigan's wind energy boom. Because the region boasts the highest on-shore wind speeds in the state, it has seen the lion's share of wind energy development over the past several years. The rural, agricultural community now has wind turbines in every section of the township.

Michigan now ranks number 16 of 50 states in terms of wind energy development, according to the American Wind Energy Association. The vast majority of that capacity is owned either directly by utilities or by private companies that sell capacity to utilities.

"It's a good thing for our community," says Wren. "It brings some revenue in for the farmers, and some additional revenue to the township. All of that helps the whole community in the long run."

Michigan's wind boom was driven in large part by Public Act 295 of 2008, which created Michigan's Renewable Portfolio Standard. The law required Michigan utilities to source 10 percent of their energy sales from renewable sources by 2015, and set specific targets for Michigan's two largest investor-owned utilities: 600 MW for DTE Electric, and 500 MW for Consumers Energy by 2015.

Utilities are on track to meet or exceed these requirements, according to a Michigan Public Service Commission report. Of the 1600 MW of renewable energy capacity built in Michigan between 2008 and 2014, the majority, 92 percent, is wind. That's followed by biomass (3 percent), landfill gas, (3 percent), and solar (1 percent), according to our analysis of Michigan Renewable Energy Certification System data. The cost of wind energy per megawatt hour is comparable with coal, according to the U.S. Energy Information Administration.

Now, Michigan legislators are preparing for the debate over what's next. Several bills have already been introduced, including a bill to increase the renewable standard for utilities and a bill to repeal the RPS entirely. Meanwhile, an Energy Working Group, comprised of a broad cross-section of stakeholders and chaired by Senate Energy and Technology Committee Chair Mike Nofs, met over the summer to craft recommendations. Those recommendations are expected to be revealed in the new year.

"We've been talking about where we go from here," says Ward. "Do you go forward continuing the standard? Do you change some things that, as people worked from 2008 to 2015, were a hindrance to progress that could have been made? We have the potential to do a lot more."

One thing Michigan legislators will have to decide on, if the state is to continue with an RPS, will be what number to target next. The 10 percent goal was reached without significant rate increases; in fact, renewable energy surcharges that were negotiated by utilities to pay for renewables back in 2008 have been reduced or eliminated, as renewable costs came in less than expected.

"There have been numbers thrown around anywhere from the 1.5 percent increase per year rate that we’ve already been doing, to a package of bills that had a 4.5 percent increase every 3 years to get to 19 percent by 2022," says Ward.

Michigan is one of 29 states that have established a renewable energy portfolio standard. Targets range from 9 to 10 percent in Michigan, Wisconsin, Arizona and Pennsylvania, up to 25 percent by 2030 in Massachusetts, 33 percent by 2020 in California, and 40 percent by 2030 in Hawaii. Other states have established goals, but no requirements.

Mark Barteau, Director of the University of Michigan's Energy Institute, is spearheading a study to offer an unbiased evaluation of potential scenarios for the RPS, something he felt was important after a ballot measure to extend Michigan's RPS to 2025 and increase the target to 25 percent failed in 2012.

"After coming to Michigan as the director of this institute in the fall of 2012, I was struck by how little input there seemed to have been from universities and experts within the state," says Barteau. "The Energy Institute ought to be a resource for the public and policy makers on important issues like this. There was a lot of mud-slinging about the cost of an increased RPS on the 2012 ballot proposition. Our objective is to do an analysis so that the next time this issue comes up, in whatever form, we would actually have a contribution to make to the discussion."

Mark Barteau. Photo by Doug Coombe.

Jeremiah Johnson, Assistant Professor at the University of Michigan's School of Natural Resources and Environment, is carrying out that research. He is studying the costs and benefits of Michigan's energy framework as it relates to potential future renewable portfolio standard scenarios.

"The program costs are modest," says Johnson. "The costs associated with a 25 percent RPS by 2020 would impact a typical household, one that consumes 600 kilowatt-hours per month, about $2.60 per month; that's less than a 3 percent increase."

"It's important to look at in the context of the EPA's proposed rules for carbon reduction for existing power plants," he says. "When the proposed rules come to fruition, renewables can play a really important role. By expanding RPS, Michigan could position itself to meet a large share of that carbon reduction goal largely through in-state renewable generation. Some rough estimations show that a 25 percent RPS would get us about two-thirds of the way there."

In addition to helping clean up carbon, the economic development impact of renewable energy development should not go unrecognized, says Ward. His organization prepared a study documenting that impact.

"You’re talking another 20,000 jobs in Michigan or another $3.28 billion worth of economic impact to our state," he says. "I think that’s where we add the value. We are telling people not to be afraid to vote for these things because economically, for our state, it is very favorable."

Irene Dimitry

Director of Marketing & Renewables, DTE Energy

IMG: How has DTE Energy worked to meet Michigan's Renewable Portfolio Standard?

Dimitry: When the standards was set, DTE Energy had less than one percent of its portfolio in renewables, and right now, with projects that are operating, we have 9.6 percent. By 2015 our last projects will have been completed and we'll be where we need to be for the 10 percent goal. About half of our portfolio is owned by other people and we buy the output under contract, and about half are assets that we own.

IMG: What are some examples of these projects and what do they cost?

Dimitry: In terms of purchasing output, our first contract in 2009 was a wind contract with Heritage Development, a Michigan developer, called Stony Corners. It was a small wind farm. At that point we contracted $116 per megawatt hour, which is a distinct premium over traditional generation. In the last year or so we've had contracts signed where we buy the output of a wind farm at around the $50 per megawatt hour mark, so it's come down quite a bit. Generally we do a competitive bid, and then developers bid in and we negotiate a contract, and then they build it and sell us the output.

Most of the assets DTE has developed itself are wind parks in the thumb area of Michigan. Depending on how you count it, we have four wind parks in the thumb area, and then we have two projects that we purchased from somebody else and own now. One is in the thumb area and one is in the middle of the state. For the projects we developed ourselves, we did the whole development process. It's a couple of years of wind studies and wildlife studies, and siting and permitting. Then you go through the construction. The construction itself takes one construction season. Now we're operating them, and they're operating very well and at a cost comparable to or better than purchased power.

IMG: To what do you attribute the decline in wind energy cost over time?

Dimitry: The technology has improved. Back in 2008, it was still pretty early in the evolution in this generation of wind turbines. Most of the turbines were designed for much higher wind speeds than we have in Michigan, so it just wasn't really optimized for our situation. Think of it like, if you have a race car, and you have a mini- van. They're both cars, but one's optimized to go really fast, and one's optimized if you're running around the city.

In the meantime people have figured out how to optimize wind turbines to work in different wind regimes, and that helped. The other thing that really helped is the towers have gotten taller, and the blades have gotten longer. That means, the winds are stronger the taller you go, and the bigger the blade is the more you capture.

IMG: Have any solar assets been developed?

Dimitry: Wind is the vast majority of our portfolio, like 95 percent or more, because it's the most economic renewable resource in Michigan. But we have had a solar pilot program. It's a mixture of projects that customers design and build, for example on their rooftops, and then we buy the renewable energy credits from them. Then we as the utility have developed our own larger solar arrays. We did it as a pilot to learn how to do it, how to integrate it into our system, what works well and what doesn't work well.

From a learning perspective it's been successful, but it's also proven that solar is very expensive here in Michigan and it doesn't make economic sense to do a lot more of it at this point in time. We'll still keep our hand in to make sure that we know how to do it, and stay up with the technology, but at this point we're not really planning on doing any more because solar can cost a lot. With wind being at about $50 per megawatt hour, solar can cost $300 per megawatt hour, so it doesn't make sense to do a lot of that, because we want to make sure we're keeping our rates affordable for our customers.

IMG: How does wind energy compare in cost to traditional fuel like coal?

Dimitry: At this point wind is fairly competitive with traditional technologies, but not on an energy basis. The problem is that wind is intermittent, and you can't count on it. From a utility perspective, as we're planning our portfolio, we have to think about how much energy we can produce on demand at a given point in time. We talk about how much capacity we have at any given point in time. Wiind is not competitive on a capacity basis because you can't count on it. If you added in the cost of back-up power, to make sure that you always have access to power, that's when wind becomes not competitive. So it's competitive in one aspect, but not in the other. It makes sense as part of a portfolio, but it needs to be part of a diverse portfolio. You can't rely totally on it.

IMG: What have been some of the costs and benefits of the RPS as it has rolled out since 2008, both for DTE and for the ratepayers?

Dimitry: Certainly when it started, it was much more expensive than traditional generation, but it kind of gave a kick start to the industry and got us to learn how to do it. There was a cost to it, but the benefits are that we do now have essentially 10 percent of our portfolio in clean energy, so clearly we have the environmental benefits, and it's developed jobs along the way.

A wind farm, as we're constructing it, might have 150 or 170 people working on it at any given time during the construction process. Those are good paying jobs. It also helps the communities where we site in terms of the property taxes that we pay, which help the city, their schools and their police and fire and roads. Then there's the economic development impact. When we are building you've got all these construction workers in hotels and restaurants and gas stations. It helps the community. We've also worked hard to help companies within Michigan develop in this industry to the extent that we can; we try to source locally from Michigan.

In terms of total cost, we've directly invested about a billion dollars for the half of the renewable assets that we own, and then for the other half owned by other parties, you can assume they've invested about the same amount. It has driven about $2 billion dollars worth of capital investment in Michigan.

IMG: What do you hope is taken into consideration as Michigan considers how to move forward with renewable energy?

Dimitry: I think the key word is comprehensive. I hope people are looking at this within the context of what Michigan needs, and that they keep in mind affordability and reliability. Another phrase I'd use is flexibility. We don't know yet exactly what will happen with federal regulations. If you set something in law, you want enough flexibility to make the right decision as you're deciding on that next asset, what makes the best sense for Michigan families and businesses going forward. We expect we'll build more renewables, but we want to make those decisions in the context of those broader issues of affordability and reliability.